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Effective IR: Building Trust with Clarity, Candor and Consistency

What does it take to have an effective investor relations (IR) team, and how can IR provide value to CFOs and management, as well as investors? Rob Binns, vice president of Investor Relations for Hewlett-Packard (HP), discusses what has made him an effective IR leader and how IR can provide the most value to their company, the investment community and stakeholders. Named by money managers and analysts as one of the best in his business in Institutional Investor’s 2014 IR Professionals rankings, Rob also explains the importance of knowing the business, serving as a trusted conduit of information and feedback between senior management and shareholders, and “getting out to tell the story.”

Q: What do you think has helped set you apart among IR professionals?

Rob Binns

Rob Binns: First and foremost, it’s being considered a trusted advisor both internally and externally. And that all comes down to clear, consistent and honest communication and building strong relationships based on trust and credibility. We couldn’t be successful as an IR team without the high level of communication with our leaders and the support we get from them, and that’s true from Meg (Whitman, CEO) to Cathie (Lesjak, CFO), to the board.

Second, investors tell me they really value the business perspective our IR team brings. HP has a rotational model for IR. None of us are IR professionals by trade. We all come into the role with a different set of backgrounds and experiences from other parts of the company. Before joining IR, I ran operations in the software part of our business, and previously held finance roles both in software and in services. Other team members also include an ex-treasury person and someone from our HP ecommerce business.

I also think we owe a lot of what our IR team has achieved to the way we’ve amped up the level of outreach activity. When I started here, we agreed that we were going to be very active in getting out in front of investors to tell the story, regardless of good news or bad. That helps you build credibility with the investment community—with strong and consistent outreach—whether the story is positive or tough. We’ve also focused on doing that outreach in a more targeted and efficient way, leveraging opportunities to get in front of investors and to showcase particular parts of the product portfolio that you can’t fit into a one-hour earnings call.

Q: How would you describe a world-class IR organization?

Rob Binns: There are a few things that define any top IR organization in my mind. First is being known for regular, consistent interaction with the investors, getting out there and telling the story. The more you go out there and the more you tell it, the more people understand it, the more consistency there is, and the more credibility you build. There is no substitute for that in terms of building two-way trust, not only in terms of telling them the story, but also so that IR can serve as investors’ conduit back to management.

Second, you’ve got to really know and have a strong connection to the business, know your product, and know the competitive environment. That requires a team with a balance of strategic skills and product understanding, as well as financial and communication skills. It takes a lot of work to keep on top of everything that’s going on, which means having a mindset of continual learning of your business. I’ve been doing it for over two years now, and there isn’t a month that goes by that I don’t learn something new about our business. If you don’t have the strong knowledge base, you start to get a little bit exposed, and the story starts to get a bit wobbly. Every quarter end, we have a discussion with our regional sales leaders in all the businesses. We say, “Ignore the numbers for a minute, just tell us what you’re seeing, what’s happening on the ground, who’s playing, who’s not playing.” Those sorts of conversations are critical to understanding the business and forming the message. And when you lay that message out, you’ve got to be aware of what your competitors and partners have said and what others are trying to do.

Another factor is internal alignment on the messaging. We work very closely with the external communications team to make sure we speak with one voice across the whole organization. That way what the analysts hear from me is consistent with what they hear through other channels. Getting that consistent messaging with the same theme, same topic and same answers reinforces the message and helps build credibility.

And finally, you have to be able to represent authentically the view of the shareholders. You need to be able to present their perspective back to the leadership team and be an effective conduit for them.

Q: Where can IR deliver the most value to the CEO and the CFO?

Rob Binns: I can point to a number of areas, but it starts with IR’s role to convey the voice of the shareholder back to management. If you can clearly understand what investors and other external audiences are looking for and concerned about, and effectively play that back to the company’s leaders as they think about strategy and performance, you are providing great value to them.

Having that understanding and appreciation of what your shareholders are looking for is critical to leadership as they develop and hone the strategy for delivering shareholder value. That’s especially the case, given the increasing level of shareholder engagement. For any company, it is important to be on top of your investors’ investment thesis to understand how to address their concerns. We have robust conversations with our top shareholders to get their feedback, how they think we’re doing, how the board is doing, and what our progress looks like in terms of maximizing shareholder value.

With respect to new CFOs and finance professionals, I’ve found that unless you make a conscious effort to understand the shareholder perspective, it doesn’t always align with what you might think. For instance, business finance people tend to focus on the P&L and the balance sheet as they support their business. However, investors can often focus on other things such as cashflow and capital allocation, and so it is key to address these issues. For example, some of our investors gave us feedback on HP’s return on invested capital. Working with the CFO and the finance teams, a lot of work has been done on improving the process around return on invested capital.

Second, helping company leaders be well prepared when they face investors and the Street is one of the most valuable things an IRO can do for the company. That means anticipating not just the first, but the second and, third-level questions that are likely to come their way on any given issue and discussion point. Every CFO will probably measure their IR person on whether or not they get exposed in terms of being prepared for the questions that are likely to come up on earnings calls.

Another area where IR can provide value is building clarity of expectations for investors. Being transparent about what the expectations are, good and bad, is critical. In our case, management is executing on a five-year turnaround plan. It’s big and it’s complicated, with lots of moving parts. Helping investors understand what the milestones are and what they can reasonably expect along the way is incredibly valuable. We’ve been very clear, for example, that there may be some bumps on the road. The feedback I get from investors is they welcome an honest, straightforward story—they don’t want to be sold to, they don’t want to be spun to.

Q: When communicating surprising or disappointing news are there certain considerations or guidelines that you follow?

Rob Binns: Regardless of the situation, it comes down to communication and relationships. If you communicate your story with consistency, clarity and candor, you build trust and credibility with investors. One of Meg’s leadership principles is ‘run to the fire’—If you’ve got a tough message to deliver, don’t shrink from it. Address it head on, with a frank assessment of the issue, the reasons behind it and what’s being done to address it. You’ve got to have a plan and really think through the implications of what you’re telling people, and make sure that message is consistent across all the audiences you’re trying to address. You need to be aware of prior public commentary from the company to bridge any gaps between what you said before and what you’re saying now.

If you’re introducing a change in corporate strategy, think about the company’s ability to deliver consistently against that plan and execute on it. Be realistic about non-linear progress; if it’s going to be three steps forward, two steps back, say so. Then help investors understand how you’re measuring your progress against your goals. Explain the metrics and signposts investors should use to monitor your progress against the plan. You build credibility first with transparency and then by consistently delivering and executing.

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